The Fine Print: Leasing Negotiation Advice

In our previous blog, we covered some important front-of-the-house operations advice for providing consistent, ongoing e-training for employees. As the restaurant industry is one that continually evolves, your client’s needs might change as they approach the end of their leasing date. However, if your clients are looking to renew a lease or find a new location, the terms and provisions can be more detrimental than they initially imagined.

Learn how they can negotiate these terms to favor their business, control their losses and protect their assets, particularly with Restaurant Insurance Programs.

Create a plan.

Ideally, your clients should have a plan about location, cost, and what works for them. They should weigh the costs of renewing their lease or finding a new one before working to negotiate the terms in either scenario.

Percentage rent.

Some leases require “percentage rent.” Once a tenant’s sales reach a certain level, the tenant must pay the landlord a percentage of the restaurant’s revenue.

“I’m not a big believer in percentage rent if it can be avoided,” says attorney Gregory Apter, president of Hilco Real Estate. “It’s generally no one’s business but yours as to how you are performing.”

Sharing this information unnecessarily can hurt future negotiations.

“If the landlord knows the financial performance of a particular retail location, it can materially—and negatively—impact your future flexibility,” he says. Nonetheless, percentage rent is fairly common. If you ultimately agree to it, negotiate the terms, he recommends to the National Restaurant Association.

Exclusivity.

This is one of the most important things to negotiate in your client’s lease terms. While clients can’t prevent any other restaurants from moving into the block, they can negotiate whether or not they hold exclusivity in the area. This means that, if your client is a pizza restaurant, the landlord cannot allow another pizza restaurant in that center.

Advise your clients to inquire about radius restrictions held by their landlord. In some instances, they prevent their tenants from opening new locations within a certain radius which could hinder their business’ growth.

Subletting permission.

You’ll want the right to sublet or assign the space to another tenant, should you need to close or sell your restaurant. Avoid restrictions that require the transferee to have the same net worth or experience as you, advises retail broker Muhlebach.

Increase in price.

More often than not, rent increases after the lease term is up. There are two types of increases: percentage increase and market value increase. It’s wiser to opt for percentage increase so that the additional expense can be budgeted rather than being hit with a huge overcharge.